STAAR Surgical Co (STAA) 2003 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the STAAR Surgical third-quarter 2003 results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded Thursday, October 30th of 2003. I would now like to turn the conference over to Mr. Doug Schirk of EBC Group. Please go ahead, sir.

Thanks operator and good afternoon everyone. Thank you for joining us this afternoon for the STAAR Surgical conference call to review the financial results for the third-quarter ended October 3rd, 2003. The news release reviewing the third-quarter results crossed the wire about 15 minutes ago and we apologize for this delay which was brought on by the resolution of the previously discussed SEC review and STAAR's desire to discuss this resolution this afternoon. If you haven't received a copy of the release and would like 1, you can call our office at 415-896-6820 and we'll get one out to you immediately.

Additionally, we have arranged for a taped replay of this call which may be accessed by phone. Its replay will take effect approximately 1 hour the call's conclusion and will remain in effect to tomorrow night, Saturday -- excuse me, yes Saturday night, November 1st at 11:59 p.m. pst. The dial-in number to access the replay is 800-405-2236 or for international callers, 303-590-3000. Both need to use the passcode 555304 #. In addition, this call is being webcast live with an archived replay also available. To access the webcast, go to STAAR's website at www.staar.com. The webcast archive of the call will be available until the coming release, its final year results for 2003 sometime in late February.

Before we get started, during the course of this conference call, the company will make projections and other forward-looking statements regarding future events including statements about domestic sale, the planned submission of its SDA filing for imflammable contact lenses, the company's beliefs about its revenues and earnings for the full year ended January 2nd 2003. We'd like to caution that you that such statements are just predictions and involve results and uncertainties. Actual results may differ materially. Factors that affect actual results are detailed in the Company's filings with the SEC, including its most recent filing of the Form 10-Q and 10-K. In addition, the factors underlying the Company's forecast are dynamic and subject to change and therefore the forecasts are to be assumed to be realistic only as of the date they are given.

The company doesn't undertake to update them, however, they may choose to do so from time to time, and should they do so, they will [indiscernible]in public. Now I'd like to turn the call over to David Bailey, President and Chief Executive Officer of STAAR Surgical Company, who is suffering from a very heavy head cold today.

Thanks, Bill. And, good afternoon everyone. Thank you for joining us for the STAAR Surgical third-quarter conference call. With me today is John Bily, our Chief Financial Officer, Deborah Andrews, our Global Controller, and Helene Lamielle, our Chief Scientific Officer. Today, I am going to start up the call with a quick recap of our third-quarter results and update you on the progress we've made in various product segments. John will then review our financial performance, including yesterday's SEC advisement. We will then open up the floor to questions.

Before I begin, we would like to acknowledge the lack of balance sheet highlight in the news release. Given the SEC advisement yesterday and the need to slightly adjust our financial statements, we will be delaying the distribution of the third quarter balance sheet highlights. John will, however, review some of the highlights later in the call. As soon as these are fully finalized, we'll then distribute.

Now, let's turn to the quarter where the most significant component of our financial performance was certainly the progress we made in the U.S., which had sales growth of 5% of the quarter, and almost flat sequentially, despite seasonality. This compares extremely favorably for the comparisons from the last three-quarters. Quarter 2 was down 3%, quarter 1 was down 6%, and quarter 4 of 2002 was down at 11% all year-over-year. We are pleased with the progress that we're making in the U.S., and that we're delivering on our commitment to shareholders to reverse the decline in the U.S. business.

Our net loss increased year-over-year to a loss of 15 cents per share and largely reflects a non-cash charge that we took to write down patents associated with the circuitry acquisition and the reversal of reserves we took against officer's notes. Without this charge, our net loss would have been 13 cents per share. During the quarter, international sales were relatively flat compared with the third-quarter of '02, however, for the first 9 months of 2003, international sales have grown 18.9% versus the same period of last year, and represent 53% of our total revenues. As a reminder, international sales were up very strongly in the first half of this year, largely as a result of ICL sales, which were up 20% in the first half.

The slowdown in international sales was reflective of the normal seasonal slowdown in surgery in Europe we see every year. This year, however, the slowdown was more protracted than normal. In addition, we have seen a slowdown in elective surgery procedures including, [indiscernible] and Korea, which we believe is reflective of the political and economic turmoil in the first half in that country.

We believe that we are beginning to see renewed strength in international sales, which rebounded during the month of September. In fact, we recorded a 28% increased in ICL units, so, during the month, with Toric ICL sales in particular, gaining traction. We also regard the pending approval with the ICL in Taiwan and in Australia as potential upsides to international revenues. On the cataract side of the business we've recently began shipment of the world's first Pre-loaded Silicon Intra-Occular Lens, that has been developed by our joint venture with Cannon in Japan. We obtained CE mark [ph] approval for this in early October and the engrossed our first sale last week. Early indications are that market acceptance of this unique cataract device will be very high.

As you know, our U.S. operating cost structure is highly leveraged, and with the increase in U.S. sales, we were able to increase our gross profit margins for the 6th consecutive quarter to 55.2%. We continued to focus on creating greater operating efficiencies internationally, and we were able to raise our international gross margins by 3.4% from the third-quarter of 2002. John will comment on that in a little bit more detail. Despite the depressing effect on sales of unusually high European seasonality, I was delighted with the turnaround in the U.S. business that has occurred during quarter three. We had committed to shareholders to halt the decline in this high-margin business in the second 6 months of this year, and we have done exactly this.

We saw a growth of 22% in the high margin speciality lenses for the third-quarter, accelerating the growth we saw in the first half. Our marketing efforts around the Collamer material are helping to generate an accelerating sales trend for this product category, despite the fact that we have yet to bring the Three Piece Lens to market effectively, due to the lack of an effective injection system. Unfortunately, we now do not believe that the new injector system for the Three Piece Collamer Lens will be perfected prior to the end of the year, and we realize that we won't make the time line that we had previously outlined for investors.

As we have indicated previously, we have identified the challenges and are working diligently to address them. This process is taking longer than we expected, but we believe we'll be able to deliver a new State-of-the-Art injection system by the end of the first quarter of '04. Given this delay, we will continue put all efforts behind the one piece Collamer, and as a result, we anticipate continued growth of this segment and have already increased capacity in our Swiss manufacturing facility where we make the Lens.

With the change in mix from Silicone to Collamer plate [ph], and all the speciality lenses increasing, we have seen a very healthy trend in our average lens selling price within the U.S. market.

Growth in the US underscored the acceleration of our future potential profit growth. The healthy return of our U.S.-based business provides an excellent platform for the potential launch of the ICL in the U.S. I would repeat, we have now had 6 sequential quarters of gross margin improvement, and fully expected this to continue going forward. We are seeing surgeons who are interested in the ICL, being interested in the One-Piece Collamer eye IOL and wanting to get experienced with the material. I'd now like to provide you with an update on all activities surrounding the potential FDA approval and subsequent launch.

Firstly, regarding the FDA. As you know, we had a very successful panel meeting with the FDA on October the third, 2003. At the conclusion of the meeting, the CDRH panel voted to approve the ICL with conditions. We regard the 8-3 vote for approval as a tremendous vote of confidence in our technology. I would remind you, as well, that we have completed this entire process from filing to panel meeting on an unprecedented time line. If you recall, it was in May that we filed the original PMA [ph]. We were then granted an expedited review in June, and were recommended for approval during the first week of October. After the panel vote, the next step was to wait for receipt of the full transcript of the panel meeting. This is now available. At this point, we have been advised that the review team at the FDA is in the process of making labeling recommendations, and will be meeting internally to provide to the Company their view of the labeling requirements.

We have been given no formal time line as to when these formal labelling recommendations will be presented. We assume, however, that this will be in line with other aspects of the review, i.e. Expedited. With this in mind, we have communication with the FDA since the panel meeting and continue to follow up and feel confident that labeling discussions will begin shortly.

Secondly, I would like to give you a brief [indiscernible] sales ramp up for the ICL. We continue to generate tremendous mind share with the scientific and medical community with regard to this product. As part of our marketing plan, we will host a revamped new board at the upcoming AAL [ph] meeting. We will use this to debuted our new brand name for the ICL, as well as focusing on the new Collamer position that is driving the sales growth that we are seeing. There are more than 15 dynamic lectures scheduled for the [indiscernible], including discussing the 3 year results of the U.S. FDA clinical trial for the ICL. In addition, lectures will cover Collamer bio-compatibility, and importantly, the interim results of the U.S. FDA clinical trial for the Toric ICL, the next generation products. During the conference, there will also be a CME sponsored educational call on Sunday morning to teach Ophthalmologists about our Sercic [ph] Refractive Lens.

World renowned Doctors will discuss the nuances of our new technology and comment on case studies that will be presented. At last count, they were already more than 400 U.S. doctors signed up for the course. At this stage, we are only registering doctors for the course. The organizer is considering a move to a larger room that will accommodate an audience of at least 500. We regard this interest as not unexpected for a first of a kind technology which we have with the ICL. And we see it as being in line with the interest being expressed in attending an ICL training course post-FDA approval. For more information on this event, you may visit the OSN web site online at www.osnsupersight.com.

Finally, regarding upcoming marketing and launch of events of the ICL, I'd like to give you a quick synopsis of our progress, in establishing our certification program. Sorry about that.

There are two elements to certifying a doctor to implant the ICL. The first step is a doctor paid training course, that typically lasts between one and two days. These training courses are being structured to have no negative impact on our P&L and our experience overseas gives us absolute confidence that this will be the same in the U.S.. We're planning for all these training courses throughout 2004.

The second step in certification, is the proctoring process. The cost of the step is being factored into our ICL marketing budget, that we have previously outlined as 1.1 million for 2003, and 2.5 million for 2004. We have already recruited six highly qualified professionals as proctors, along with a director of education for the whole ICL program.

Our goal is to increase to 8 proctors at launch. This recruitment processes has been very efficient, as we've had an abundance of interest from very well qualified candidates. Before doctors are certified to perform ICL surgery, they will have to complete a minimum of four supervised procedures, using STAAR lenses. These lenses must be purchased from the company. These procedures will typically take place in one day, after which the surgeon, assuming here she achieves certification status, will be free to purchase the ICL.

We believe that this two-step process will provide the training necessary for ocular surgeons to become skilled at ICL implantation. Our greatest concern is to ensure that the learning curve of the involved doctors is handled appropriately, so that the introduction of the product will proceed without any problems. This is the same process we've established in new markets, such as Korea and Canada, and which has worked so well to deliver quality outcomes.

We have also planned to use our existing sales force to market this product. Their efforts will be directed within a clearly defined, and orchestrated internal marketing program. As a result, this product will be highly leveraged on the existing structure. Our current sales force are already visiting many of the target ICL doctors. The incremental sales and marketing expense is clearly defined, and adequately accounted for, within the incremental $2.5 million.

With all of this activity around the ICL, I can tell you that quite clearly that as a company, we feel very comfortable with analysts current projections for ICL sales next year, and continue to believe that the absolute market for the Facic [ph] lens implant within the U.S. will match or indeed exceed, the highest analyst projections currently offered.

This quarter was obviously a very busy one. We believe we're solidly on track to achieve our long-term goals. We are pleased with the turnaround that is developing in our base business, as well as the speed at which we have passed significant ICL milestones. At this time I am going to hand over to John to recap in a little more detail the financials.

Thank you David. The overall financial and operational fundamentals of the business continue to improve, year-over-year. As David mentioned, gross profit margins improved for the sixth consecutive quarter. STAAR continues to fund and grow it's R&D investments. Interest expense and debt have been significantly reduced. Working capital management remains a company focus; manufacturing costs have been favorably impacted by rigorous expense control, and yield in efficiency improvement. The company today has nearly $10 million in cash. I'll briefly recap Q3 and year-to-date financial results.

Net sells for the third quarter were 11.927.000, up 7.6% over prior year quarter. For the year to date period, sales $37,656,000, an increase of 8.4% over prior year. In the U.S. market, sales increased 5% during the quarter, and were down 1.6% for the year-to-date period. This marks the first quarter since Q2 of 2001, that the year-over-year U.S. sales comparisons have been positive.

International sales for the quarter increased 10.3% over prior year. For the year-to-date period, international sales were up over prior year in 19.1%. Excluding the effect of currencies, international revenues was down 1.6% for the quarter, and grew 2.8% for the first nine months of 2003. ICL and Toric ICL revenue grew 15.5% during the quarter, and unit sales grew 15%. [inaudible] sales were flat wearing Q3. AquaFlow sales declined 8.7, specialty lens sales increased 22%, with Collamer lens sales up 28%. Silicon lens sales declined 17% during the third quarter.

For the year-to-date period ICL and Toric ICL revenue grew 34.6%. DArvis [ph] sales increased to 20.5% and AquaFlow sales declined 13.7% Specialty lens sales increased 14.4% and silicon lens sales declines 15.8%.

Gross profit excluding royalty income for the quarter was 6.6 million, approximately 1. million higher, or 19.7% increase over prior year. Gross margin was 55.2%, a full 5 1/2 margin points improvement over prior year quarter. Year-to-date gross margins excluding royalty income, was 54.6%, again a 5.5% margin improvement over the prior year, year-to-date period.

Gross margin improvements continue to be the results of reduced cost structures in our manufacturing facilities, and production yield and efficiency improvement and increases. In addition to the upttick in the U.S. IOL business, which had a positive impact on gross margin, and as we mentioned in previously in some of our calls, that the U.S. IOL product line operates with a higher gross margin percentage than the international IOL business.

So, our cost structures are improved by cost reductions, by yields, by efficient, and also by mix of product and geographies in the U.S. marketplace.

General and administrative expenses in Q3 were 2.3 million, an 11.% increase over the prior year. The increase in G&A reflects increased legal and audit fees, associated with the SEC consultation, related to the accounting treatment for loans to Officers and Directors, and I will discuss that in detail later. This was a onetime event which we do not expect to reoccur.

Year-to-date G&A expenses were 6.8 million, which was flat to prior year spending. Sales and marketing expenses during the quarter were 5.05 million, approximately one million above Q3 of 2002. But the year-to-date period, expenses were 13.6 million, a 9% increase over the same period in 2002. As mentioned in last quarter's conference call, the company has initiated activities associated with the anticipated launch in 2004, of the ICL.

The increased spending in marketing and selling was the result of additional salaries and travel, onetime employee relocation and hiring costs, marketing consulting and promotional activities, and the loss on disposal of a trade show booth. We continue to streamline the U.S. operating structure to help offset the increase in marketing and selling activities.

During the quarter, the company integrated to the Facro [ph] emulsification [ph] business into the Monrovia California facility, which will provide substantial operational savings, and better coordination and communication with the business.

Spending for R&D and clinical and regulatory activities increased in the third quarter. Spending was 1.3 million, up 32% over Q3 of 2002, but down slightly from the second quarter of this year. For the year-to-date period, research and development expenses were increased to 3.9 million, 800,000, or 26.8% increase over the same period one year ago. Total SG&A and R&D spending for the third quarter was 9 million. Including the net charge associated with the write-down and reversal of reserves, the total SG&A and R&D expenses were 8.7 million.

For comparison purposes, this compares with 7.1 million in spending for the third quarter of 2002, which excluded the charge for employee separation costs. During the third quarter the Company wrote down 2.1 million in capitalized patent intangibles, in connection with its yearly SFAS 144 analysis, which is the accounting for the impairment of long lived assets.

These patents were recognized during the acquisition of Circuitry Medical in December of 1999. Additionally, the company reversed 1.7 million of reserves, against former officers notes, which were collected during the quarter, resulting in a net charge of .4 million dollars.

Operating loss for the quarter was 2.5 million, compared to 1.7 million in the prior year. On a comparable basis, and excluding unusual charges, the operating loss this quarter was 2.1 million, compared with 1.5 million in the same quarter last year.

The year-to-date operating loss excluding charges, was 3.7 million, versus the comparable prior year operating loss of 5 million. Total other income and expense for the quarter was $180,000, within the various categories interest expense was 90,000 less than prior year; equity and earnings of Canyon Star JV [ph] was 150,000 better than prior year; exchange gains and losses were 152,000 less, and interest income was 50,000 favorable.

For the year-to-date period, other income and expenses was one million favorable to the corresponding period last year, due to reduced interest expense, favorable exchange gains and losses, and improved equity and earnings of the Canyon Star joint venture.

As in prior quarters, the company reported no income tax benefits on U.S. entity net operating losses. Net loss for the quarter was 2.7 million, or 15 cents per share. Net loss for the third quarter of 2002 was 12 cents per share. On a comparable basis, excluding unusual charges, net loss this quarter was 2.3 million or 13 cents per share, and net loss in the same quarter last year was 1.9 million, or 11 cents per share.

For the year-to-date period, net loss was 4.8 million or 28 cents per share. Net loss for the same period last year was 41 cents per share. Again excluding charges, the net loss this year was 4.4 million, or 25 cents per share, and for last year was 38 cent loss per share.

As of October 3rd 2003, STAAR's cash position, cash and cash equivalent position, was 9,861,000 and total notes payable were 3,257,000. Inventories were 12 million which is a 200,000 increase over year-end 2002. Accounts Receivable was 6.2 million, a 400,000 increase over year end 2002.

Cash flow from operating activities was $1.2 million negative, capital expenditures for the quarter were 391,000. Proceeds from the collection of notes receivable 2.2 million, and proceeds from stock options 600,000. Net increase in cash for the quarter was $1.4 million.

As many of you know, and as I mentioned during the explanation of the increase in G&A expenses, STAAR has had ongoing discussions during the quarter with the office of the Chief Accountant of the SEC Division of Corporate Finance regarding STAAR's historical method of accounting, for promissory notes received from former Officers and Directors.

On October 29 2003, the Office of the Chief Accountant informed STAAR that it considered the issue to be an audit matter, best resolved and determined by STAAR and its auditors. STAAR and its auditors BDO Siedman [ph], have thoroughly reviewed the facts and circumstances of the notes in question, and have determined that the notes were accounted for appropriately, with the exception of the method used to accrue interest income.

The company has determined that this is an accounting error, and that it will require restatement of its financial statements for the year 2000, 2001 and 2002, and for the first quarter of 2003, and the second quarter of 2003.

The impact to the financial statements in each of those periods is as follows. For the year 2000, pretax impact will be reduced by 281,000. For the year 2001, pretax income will be reduced by 161,000. For the year 2002, pretax income will be increased by 220,000. For Q1 of the year 2003, pretax income will be decreased by 211,000 and for the second quarter 2003, pretax income will be reduced by 53,000.

We're extremely pleased and relieved to have this matter behind us, and will continue to vigorously collect the remaining notes, in a manner similar to the 5.5 million in notes which have been collected to date. As of the end of the third quarter, $1.9 million of notes from former Officers and Directors remain to be collected.

I'll spend a brief minute on some guidance for the balance of the year, and basically we believe that STAAR will generate growth in the area of 6 to 7% for the year based on sales in 2002 of $47.9 million. We are also still comfortable comfortable with our estimated costs required to launch the ICL as David clearly described in his presentation, which we told you would be an incremental 2.5 million, during 2004.

We also told you that we need to spend 1.1 million on additional sales and marketing expenses during the third and fourth quarters of 2003, and we are on track with these estimates.

Regarding 2004 we are currently engaged in our operating planning process and will finalize our plans in early December. At that time we will plan to offer our 2004 full year guidance to investors. In the meantime, we believe that 2004 will be a growth year, and as the company will achieve profitability in the second half of the year.

Now, I'm going to turn it over to David, and for a minute though, her, let me talk about some investor relations highlights. STAAR be presenting at the CIBC health-care conference on November 10, and the Harris-Nesbitt Gerard [ph] health care conference on December 11th. We will also be visiting various investors around the country during the weeks of those conferences.

Thanks John. In addition to those two conferences, I'd just like to mention that once again we will be hosting a booth at the AA conference in Anaheim, which is November the 14th through the 19th. With all of that said in a comprehensive review by John, I would like to open up for questions.

(Caller Instructions) Our first question comes from Mr. Ryan Rauch with SuntTrust Robinson Humphrey. Please go ahead.

Hi, guys, it's actually Amid calling for Ryan. Couple of quick questions. With regard to the ICO, I wouldn't say guidance but you think they might exceed what analysts have out there. I was just wondering if you could kind of quantify that for us. What would you see as you know, the potential there? Or, a number it you're willing to do that?

Yes, two points to make there. First off, I said I felt comfortable with the current estimates that you guys have for the sales. I believe that the market will be larger than the current estimates, and at this stage, I don't want to quantify our sales projections. We will do that at a later date. But just to reiterate, we feel very comfortable with the numbers that are out in terms of sales projections, and we feel that the market will be larger than the current estimates by even the most optimistic ones that are out there.

Okay fair enough. And the three-piece column, I'm wondering if we can get a little bit more detail on what's going on there with the injection system, and what you're doing to get that going by the new timeframe?

Yes. Well the first thing I want to point out is the overall goal was to turn the U.S. market around. And we've achieved that without the columnar three piece, largely because of the growth we're staying in the one-piece lens, which is doing very nicely, and we're very pleased with that. On the back of the marketing efforts with the columnar [ph] material. In terms of that -- and so we expect that growth to continue, and to sustain that improvement in the U.S. market.

For the three-piece, we are clear on the kind of injection system we need. We are realizing that we have to do some work to finesse that, particularly as regards to the lubricity of the cartridge. Which the column three-piece lens has unique properties. So that's the challenge we have.

We know we can get through that, it's just taking longer than expected. And obviously that's disappointing, but critically, we've been able to turn the U.S. business around, even without that product. And I think I've indicated -- I know I've indicated on previous meetings, that that product alone would open up the three to $5 million opportunity.

Okay and then sorry for jumping around. But back to the ICO internationally, could you comment on which countries in particular saw strong unit growth, outside of Australia?

Yes. I mean the big thing that happening in Quarter 3 was the seasonality which we expect in Europe was more protracted than normal. I mean that was partly because of the prolonged heat -- hot summer. And so we still got growth, but everything slowed down more than we had anticipated.

Testimony to that and the fact that it was transitional, was the fact that we saw a nice pick up in September, and we're seeing the same trends moving along. Korea, which was very strong in the first quarter, where we had 54% unit growth, we also saw a lull the quarter three period, which was reflective of a reduction in overall refractive volume in Korea.

Now we just attended the latest Korean National Meeting literally two weeks ago, and we're starting to see volume pick up there. So overall, the seasonality in Europe was greater than we'd anticipated. That particularly hit elective surgery i.e. refractive surgery, and so we were down further than we anticipated, and as we said we're seeing that rebound, and we saw it in September.

Okay. And then just off of that, in October, how are ICL trends internationally? I wonder if you could comment on that?

We see a continuation of what we saw in September.

Okay. Terrific. That's all for me guys. David, I hope you feel better.

Thanks a lot, I appreciate it.

Thank you nad our next question comes from Mr. Eric Chiprich [ph] with Harris Nesbitt Burns. Please go ahead with your question.

Hi, gentlemen this is Eric Chiprrich for Joanne Lynch. Just a question on the expenses and SG&A for the quarter. Can you give us a sense of how much of the 1.1 million was spent for the ICL? And then also, what some of the other expenses on legal, just to get a sense of what would be continuing going forward?

Yes Eric. Thanks. Well let me head off with sales and marketing, and then John might just want to comment on the G&A piece, which we don't think -- we know is not going to be recurring. Essentially we spent $1 million more this quarter on sales and marketing, than we did the quarter three of last year. This breaks down into onetime charges, and then ongoing expenses. Approximately a quarter of the increase, 250 were non-recurring items related to the relocation of a key employee, and the write-down of the residual value of an old exhibition booth, as John indicated.

Now the remainder of the increase was driven by expenditure on new marketing programs with an external agency. That was anticipated, and is kind of front-end loaded. And by increasing headcount for the ICL launch. So, let me give you a flavor for that. During the quarter we employed 6 proctors, trainers, and one director of education, as well as adding approximately four direct sales heads.

All of that was planned. Because we're obviously seeing a raised level of interest in the opthalmic community for the ICL. And just on that point, we had more than 50 surgeons from the U.S. that had been introduced to the product during the quarter three period, by visiting outside of the U.S., mainly the majority went to Mexico and the Dominican Republic.

Now in line with our plans going forward, those courses generated sufficient income to adequately cover all expenditure. So there was no negative impact to the P&L, for running those courses. This this is exactly the same model we're using to relaunch the project in existing markets such as South Africa with such good results. So just the kind of the underlying -- because this came up on a previous call. The training program -- the one our first days is not going to impact the P&L. The impact to the P&L will be the proctoring, and you've already seen that in terms of six people being brought on board. We expect to go to 8, assuming for the time of launch.

Thank you.

Does that give you enough on the sales and marketing?

That gives a very good sense. I would take at that a lot of this 1.1 million then was spent in the third-quarter then, it was more heavily weighted that way for the ICL?

A portion of it will be, yes. There will be incremental in the second, but the two together will go to the 1.1 that we have indicated. As John said, we feel comfortable with that, we're on track.

And then as for the training courses that you said are going to be a day or two long. Is that going to be in the ophthalmologist's office, or are you going to be hosting this in one general area for a group of ophthalmologists to come into?

No, they will be in selected centers, some of which will be ophthalmologists refractive centers, and some will be off site centers close to the trainers center. And they will be around the country, and two of them will certainly coincide with next year's ASCRS and next year's AAOR. And we'd be targeting between 30 and 40 people for each of the courses. Eric Chiprich: Great. And then finally, on the AquaFlow, the single digit decreases that we've been seeing in the last couple quarters, is that expected run rate going forward?

Yes. I'd said last time that due to the reallocation of the proctoring resource, we reported a decline in AquaFlow sales for the first six months of the year; John highlighted that. Our commitment was to reverse this decline in the second half. For quarter three, the rate of the decline has been halted versus the prior year period. In fact, we saw an increase of 11% in revenue, sequentially with a 17% increase in units.

We continue to believe that this is a great product and that we will meet the stated goal, which was that the corrective action would reduce or eliminate the decline in the second six months.

Sounds good. Thanks very much.

Thanks, Eric.

Thank you for next question comes from Chad Dug [ph] with CIBC World Market. Please go ahead.

Thank you very much guys, this is Chad in for John Calcagnini. Can you go over -- I think you mentioned what the debt level was? I didn't catch that. And then secondly if you have a number for shareholders equity? I don't. Shareholders equity we don't? I can give you the total debt for sure. It was total debt was 300,257,000. So that's our notes payable in Switzerland. That's no U.S. debt whatsoever.

And total cash at the end of the quarter John you give that number is well. Chad, did you pick that up?

Yes I have that. And then next question, going to the certification of the ICL the two-step procedure. Is that just in the U.S. or is that something that your carrying into all of the countries?

Finally, regarding upcoming marketing and launch of events of the ICL, I'd like to give you a quick synopsis of our progress, in establishing our certification program. Sorry about that.

There are two elements to certifying a doctor to implant the ICL. The first step is a doctor paid training course, that typically lasts between one and two days. These training courses are being structured to have no negative impact on our P&L and our experience overseas gives us absolute confidence that this will be the same in the U.S.. We're planning for all these training courses throughout 2004.

The second step in certification, is the proctoring process. The cost of the step is being factored into our ICL marketing budget, that we have previously outlined as 1.1 million for 2003, and 2.5 million for 2004. We have already recruited six highly qualified professionals as proctors, along with a director of education for the whole ICL program.

Our goal is to increase to 8 proctors at launch. This recruitment processes has been very efficient, as we've had an abundance of interest from very well qualified candidates. Before doctors are certified to perform ICL surgery, they will have to complete a minimum of four supervised procedures, using STAAR lenses. These lenses must be purchased from the company. These procedures will typically take place in one day, after which the surgeon, assuming here she achieves certification status, will be free to purchase the ICL.

We believe that this two-step process will provide the training necessary for ocular surgeons to become skilled at ICL implantation. Our greatest concern is to ensure that the learning curve of the involved doctors is handled appropriately, so that the introduction of the product will proceed without any problems. This is the same process we've established in new markets, such as Korea and Canada, and which has worked so well to deliver quality outcomes.

We have also planned to use our existing sales force to market this product. Their efforts will be directed within a clearly defined, and orchestrated internal marketing program. As a result, this product will be highly leveraged on the existing structure. Our current sales force are already visiting many of the target ICL doctors. The incremental sales and marketing expense is clearly defined, and adequately accounted for, within the incremental $2.5 million.

With all of this activity around the ICL, I can tell you that quite clearly that as a company, we feel very comfortable with analysts current projections for ICL sales next year, and continue to believe that the absolute market for the Facic [ph] lens implant within the U.S. will match or indeed exceed, the highest analyst projections currently offered.

This quarter was obviously a very busy one. We believe we're solidly on track to achieve our long-term goals. We are pleased with the turnaround that is developing in our base business, as well as the speed at which we have passed significant ICL milestones. At this time I am going to hand over to John to recap in a little more detail the financials.

Thank you David. The overall financial and operational fundamentals of the business continue to improve, year-over-year. As David mentioned, gross profit margins improved for the sixth consecutive quarter. STAAR continues to fund and grow it's R&D investments. Interest expense and debt have been significantly reduced. Working capital management remains a company focus; manufacturing costs have been favorably impacted by rigorous expense control, and yield in efficiency improvement. The company today has nearly $10 million in cash. I'll briefly recap Q3 and year-to-date financial results.

Net sells for the third quarter were 11.927.000, up 7.6% over prior year quarter. For the year to date period, sales $37,656,000, an increase of 8.4% over prior year. In the U.S. market, sales increased 5% during the quarter, and were down 1.6% for the year-to-date period. This marks the first quarter since Q2 of 2001, that the year-over-year U.S. sales comparisons have been positive.

International sales for the quarter increased 10.3% over prior year. For the year-to-date period, international sales were up over prior year in 19.1%. Excluding the effect of currencies, international revenues was down 1.6% for the quarter, and grew 2.8% for the first nine months of 2003. ICL and Toric ICL revenue grew 15.5% during the quarter, and unit sales grew 15%. [inaudible] sales were flat wearing Q3. AquaFlow sales declined 8.7, specialty lens sales increased 22%, with Collamer lens sales up 28%. Silicon lens sales declined 17% during the third quarter.

For the year-to-date period ICL and Toric ICL revenue grew 34.6%. DArvis [ph] sales increased to 20.5% and AquaFlow sales declined 13.7% Specialty lens sales increased 14.4% and silicon lens sales declines 15.8%.

Gross profit excluding royalty income for the quarter was 6.6 million, approximately 1. million higher, or 19.7% increase over prior year. Gross margin was 55.2%, a full 5 1/2 margin points improvement over prior year quarter. Year-to-date gross margins excluding royalty income, was 54.6%, again a 5.5% margin improvement over the prior year, year-to-date period.

Gross margin improvements continue to be the results of reduced cost structures in our manufacturing facilities, and production yield and efficiency improvement and increases. In addition to the upttick in the U.S. IOL business, which had a positive impact on gross margin, and as we mentioned in previously in some of our calls, that the U.S. IOL product line operates with a higher gross margin percentage than the international IOL business.

So, our cost structures are improved by cost reductions, by yields, by efficient, and also by mix of product and geographies in the U.S. marketplace.

General and administrative expenses in Q3 were 2.3 million, an 11.% increase over the prior year. The increase in G&A reflects increased legal and audit fees, associated with the SEC consultation, related to the accounting treatment for loans to Officers and Directors, and I will discuss that in detail later. This was a onetime event which we do not expect to reoccur.

Year-to-date G&A expenses were 6.8 million, which was flat to prior year spending. Sales and marketing expenses during the quarter were 5.05 million, approximately one million above Q3 of 2002. But the year-to-date period, expenses were 13.6 million, a 9% increase over the same period in 2002. As mentioned in last quarter's conference call, the company has initiated activities associated with the anticipated launch in 2004, of the ICL.

The increased spending in marketing and selling was the result of additional salaries and travel, onetime employee relocation and hiring costs, marketing consulting and promotional activities, and the loss on disposal of a trade show booth. We continue to streamline the U.S. operating structure to help offset the increase in marketing and selling activities.

During the quarter, the company integrated to the Facro [ph] emulsification [ph] business into the Monrovia California facility, which will provide substantial operational savings, and better coordination and communication with the business.

Spending for R&D and clinical and regulatory activities increased in the third quarter. Spending was 1.3 million, up 32% over Q3 of 2002, but down slightly from the second quarter of this year. For the year-to-date period, research and development expenses were increased to 3.9 million, 800,000, or 26.8% increase over the same period one year ago. Total SG&A and R&D spending for the third quarter was 9 million. Including the net charge associated with the write-down and reversal of reserves, the total SG&A and R&D expenses were 8.7 million.

For comparison purposes, this compares with 7.1 million in spending for the third quarter of 2002, which excluded the charge for employee separation costs. During the third quarter the Company wrote down 2.1 million in capitalized patent intangibles, in connection with its yearly SFAS 144 analysis, which is the accounting for the impairment of long lived assets.

These patents were recognized during the acquisition of Circuitry Medical in December of 1999. Additionally, the company reversed 1.7 million of reserves, against former officers notes, which were collected during the quarter, resulting in a net charge of .4 million dollars.

Operating loss for the quarter was 2.5 million, compared to 1.7 million in the prior year. On a comparable basis, and excluding unusual charges, the operating loss this quarter was 2.1 million, compared with 1.5 million in the same quarter last year.

The year-to-date operating loss excluding charges, was 3.7 million, versus the comparable prior year operating loss of 5 million. Total other income and expense for the quarter was $180,000, within the various categories interest expense was 90,000 less than prior year; equity and earnings of Canyon Star JV [ph] was 150,000 better than prior year; exchange gains and losses were 152,000 less, and interest income was 50,000 favorable.

For the year-to-date period, other income and expenses was one million favorable to the corresponding period last year, due to reduced interest expense, favorable exchange gains and losses, and improved equity and earnings of the Canyon Star joint venture.

As in prior quarters, the company reported no income tax benefits on U.S. entity net operating losses. Net loss for the quarter was 2.7 million, or 15 cents per share. Net loss for the third quarter of 2002 was 12 cents per share. On a comparable basis, excluding unusual charges, net loss this quarter was 2.3 million or 13 cents per share, and net loss in the same quarter last year was 1.9 million, or 11 cents per share.

For the year-to-date period, net loss was 4.8 million or 28 cents per share. Net loss for the same period last year was 41 cents per share. Again excluding charges, the net loss this year was 4.4 million, or 25 cents per share, and for last year was 38 cent loss per share.

As of October 3rd 2003, STAAR's cash position, cash and cash equivalent position, was 9,861,000 and total notes payable were 3,257,000. Inventories were 12 million which is a 200,000 increase over year-end 2002. Accounts Receivable was 6.2 million, a 400,000 increase over year end 2002.

Cash flow from operating activities was $1.2 million negative, capital expenditures for the quarter were 391,000. Proceeds from the collection of notes receivable 2.2 million, and proceeds from stock options 600,000. Net increase in cash for the quarter was $1.4 million.

As many of you know, and as I mentioned during the explanation of the increase in G&A expenses, STAAR has had ongoing discussions during the quarter with the office of the Chief Accountant of the SEC Division of Corporate Finance regarding STAAR's historical method of accounting, for promissory notes received from former Officers and Directors.

On October 29 2003, the Office of the Chief Accountant informed STAAR that it considered the issue to be an audit matter, best resolved and determined by STAAR and its auditors. STAAR and its auditors BDO Siedman [ph], have thoroughly reviewed the facts and circumstances of the notes in question, and have determined that the notes were accounted for appropriately, with the exception of the method used to accrue interest income.

The company has determined that this is an accounting error, and that it will require restatement of its financial statements for the year 2000, 2001 and 2002, and for the first quarter of 2003, and the second quarter of 2003.

The impact to the financial statements in each of those periods is as follows. For the year 2000, pretax impact will be reduced by 281,000. For the year 2001, pretax income will be reduced by 161,000. For the year 2002, pretax income will be increased by 220,000. For Q1 of the year 2003, pretax income will be decreased by 211,000 and for the second quarter 2003, pretax income will be reduced by 53,000.

We're extremely pleased and relieved to have this matter behind us, and will continue to vigorously collect the remaining notes, in a manner similar to the 5.5 million in notes which have been collected to date. As of the end of the third quarter, $1.9 million of notes from former Officers and Directors remain to be collected.

I'll spend a brief minute on some guidance for the balance of the year, and basically we believe that STAAR will generate growth in the area of 6 to 7% for the year based on sales in 2002 of $47.9 million. We are also still comfortable comfortable with our estimated costs required to launch the ICL as David clearly described in his presentation, which we told you would be an incremental 2.5 million, during 2004.

We also told you that we need to spend 1.1 million on additional sales and marketing expenses during the third and fourth quarters of 2003, and we are on track with these estimates.

Regarding 2004 we are currently engaged in our operating planning process and will finalize our plans in early December. At that time we will plan to offer our 2004 full year guidance to investors. In the meantime, we believe that 2004 will be a growth year, and as the company will achieve profitability in the second half of the year.

Now, I'm going to turn it over to David, and for a minute though, her, let me talk about some investor relations highlights. STAAR be presenting at the CIBC health-care conference on November 10, and the Harris-Nesbitt Gerard [ph] health care conference on December 11th. We will also be visiting various investors around the country during the weeks of those conferences.

Thanks John. In addition to those two conferences, I'd just like to mention that once again we will be hosting a booth at the AA conference in Anaheim, which is November the 14th through the 19th. With all of that said in a comprehensive review by John, I would like to open up for questions.

(Caller Instructions) Our first question comes from Mr. Ryan Rauch with SuntTrust Robinson Humphrey. Please go ahead.

Hi, guys, it's actually Amid calling for Ryan. Couple of quick questions. With regard to the ICO, I wouldn't say guidance but you think they might exceed what analysts have out there. I was just wondering if you could kind of quantify that for us. What would you see as you know, the potential there? Or, a number it you're willing to do that?

Yes, two points to make there. First off, I said I felt comfortable with the current estimates that you guys have for the sales. I believe that the market will be larger than the current estimates, and at this stage, I don't want to quantify our sales projections. We will do that at a later date. But just to reiterate, we feel very comfortable with the numbers that are out in terms of sales projections, and we feel that the market will be larger than the current estimates by even the most optimistic ones that are out there.

Okay fair enough. And the three-piece column, I'm wondering if we can get a little bit more detail on what's going on there with the injection system, and what you're doing to get that going by the new timeframe?

Yes. Well the first thing I want to point out is the overall goal was to turn the U.S. market around. And we've achieved that without the columnar three piece, largely because of the growth we're staying in the one-piece lens, which is doing very nicely, and we're very pleased with that. On the back of the marketing efforts with the columnar [ph] material. In terms of that -- and so we expect that growth to continue, and to sustain that improvement in the U.S. market.

For the three-piece, we are clear on the kind of injection system we need. We are realizing that we have to do some work to finesse that, particularly as regards to the lubricity of the cartridge. Which the column three-piece lens has unique properties. So that's the challenge we have.

We know we can get through that, it's just taking longer than expected. And obviously that's disappointing, but critically, we've been able to turn the U.S. business around, even without that product. And I think I've indicated -- I know I've indicated on previous meetings, that that product alone would open up the three to $5 million opportunity.

Okay and then sorry for jumping around. But back to the ICO internationally, could you comment on which countries in particular saw strong unit growth, outside of Australia?

Yes. I mean the big thing that happening in Quarter 3 was the seasonality which we expect in Europe was more protracted than normal. I mean that was partly because of the prolonged heat -- hot summer. And so we still got growth, but everything slowed down more than we had anticipated.

Testimony to that and the fact that it was transitional, was the fact that we saw a nice pick up in September, and we're seeing the same trends moving along. Korea, which was very strong in the first quarter, where we had 54% unit growth, we also saw a lull the quarter three period, which was reflective of a reduction in overall refractive volume in Korea.

Now we just attended the latest Korean National Meeting literally two weeks ago, and we're starting to see volume pick up there. So overall, the seasonality in Europe was greater than we'd anticipated. That particularly hit elective surgery i.e. refractive surgery, and so we were down further than we anticipated, and as we said we're seeing that rebound, and we saw it in September.

Okay. And then just off of that, in October, how are ICL trends internationally? I wonder if you could comment on that?

We see a continuation of what we saw in September.

Okay. Terrific. That's all for me guys. David, I hope you feel better.

Thanks a lot, I appreciate it.

Thank you nad our next question comes from Mr. Eric Chiprich [ph] with Harris Nesbitt Burns. Please go ahead with your question.

Hi, gentlemen this is Eric Chiprrich for Joanne Lynch. Just a question on the expenses and SG&A for the quarter. Can you give us a sense of how much of the 1.1 million was spent for the ICL? And then also, what some of the other expenses on legal, just to get a sense of what would be continuing going forward?

Yes Eric. Thanks. Well let me head off with sales and marketing, and then John might just want to comment on the G&A piece, which we don't think -- we know is not going to be recurring. Essentially we spent $1 million more this quarter on sales and marketing, than we did the quarter three of last year. This breaks down into onetime charges, and then ongoing expenses. Approximately a quarter of the increase, 250 were non-recurring items related to the relocation of a key employee, and the write-down of the residual value of an old exhibition booth, as John indicated.

Now the remainder of the increase was driven by expenditure on new marketing programs with an external agency. That was anticipated, and is kind of front-end loaded. And by increasing headcount for the ICL launch. So, let me give you a flavor for that. During the quarter we employed 6 proctors, trainers, and one director of education, as well as adding approximately four direct sales heads.

All of that was planned. Because we're obviously seeing a raised level of interest in the opthalmic community for the ICL. And just on that point, we had more than 50 surgeons from the U.S. that had been introduced to the product during the quarter three period, by visiting outside of the U.S., mainly the majority went to Mexico and the Dominican Republic.

Now in line with our plans going forward, those courses generated sufficient income to adequately cover all expenditure. So there was no negative impact to the P&L, for running those courses. This this is exactly the same model we're using to relaunch the project in existing markets such as South Africa with such good results. So just the kind of the underlying -- because this came up on a previous call. The training program -- the one our first days is not going to impact the P&L. The impact to the P&L will be the proctoring, and you've already seen that in terms of six people being brought on board. We expect to go to 8, assuming for the time of launch.

Thank you.

Does that give you enough on the sales and marketing?

That gives a very good sense. I would take at that a lot of this 1.1 million then was spent in the third-quarter then, it was more heavily weighted that way for the ICL?

A portion of it will be, yes. There will be incremental in the second, but the two together will go to the 1.1 that we have indicated. As John said, we feel comfortable with that, we're on track.

And then as for the training courses that you said are going to be a day or two long. Is that going to be in the ophthalmologist's office, or are you going to be hosting this in one general area for a group of ophthalmologists to come into?

No, they will be in selected centers, some of which will be ophthalmologists refractive centers, and some will be off site centers close to the trainers center. And they will be around the country, and two of them will certainly coincide with next year's ASCRS and next year's AAOR. And we'd be targeting between 30 and 40 people for each of the courses. Eric Chiprich: Great. And then finally, on the AquaFlow, the single digit decreases that we've been seeing in the last couple quarters, is that expected run rate going forward?

Yes. I'd said last time that due to the reallocation of the proctoring resource, we reported a decline in AquaFlow sales for the first six months of the year; John highlighted that. Our commitment was to reverse this decline in the second half. For quarter three, the rate of the decline has been halted versus the prior year period. In fact, we saw an increase of 11% in revenue, sequentially with a 17% increase in units.

We continue to believe that this is a great product and that we will meet the stated goal, which was that the corrective action would reduce or eliminate the decline in the second six months.

Sounds good. Thanks very much.

Thanks, Eric.

Thank you for next question comes from Chad Dug [ph] with CIBC World Market. Please go ahead.

Thank you very much guys, this is Chad in for John Calcagnini. Can you go over -- I think you mentioned what the debt level was? I didn't catch that. And then secondly if you have a number for shareholders equity? I don't. Shareholders equity we don't? I can give you the total debt for sure. It was total debt was 300,257,000. So that's our notes payable in Switzerland. That's no U.S. debt whatsoever.

And total cash at the end of the quarter John you give that number is well. Chad, did you pick that up?

Yes I have that. And then next question, going to the certification of the ICL the two-step procedure. Is that just in the U.S. or is that something that your carrying into all of the countries?

Well as I said Chad, when I came into the Company in '01, I introduced that exact same process into the new markets that we launched. Which was Canada and Korea. Now we backed in to the countries where it had already been launched back in '97 '98. To try and reinforce that same certification program. Unfortunately it's more difficult to go into a market where you've had an uncontrolled launch, and kind of recontrol it.

But I would use South Africa as a very good example, where from March this year, we've gone in and run recertification courses. We had one one week ago which John Vukich [ph] ran at the South African National Society, where we trained 14 surgeons. And that was very successful. So new markets absolutely rigid programs, that;s cost neutral, we're trying to roll that out into markets where a launch had occurred but it's more difficult, but we've been very successful in South Africa, and intend to implement that in a similar way, in two other large markets which is Italy and France, where we think we've got some significant upside potential with the product.

Those two products if you remember, we changed distributor last quarter, and part of that change was to revitalize the efforts around renewed training of the ICL.

Okay. And then lastly, can you give us an idea of what total cataract business growth was year-over-year?

Yes, we could probably do that best individually. I don't know if we've got that number exactly to hand. Total cataracts -- so it's the question related to a breakout of cataracts refracting. Let's come back to you on that, we'll check it out, Chad.

On the balance sheet also, we should be able to complete our issues with our SEC yesterday afternoon, so we apologize for that, but we will have a balance sheet out either tomorrow or Monday for everybody.

Okay great, thank you.

Thank you, and the next question comes from Ms. Kate Sharadin, from Pacific Growth Equities. Please go ahead.

Hi everybody, and David I have your cold. I was curious on the SIMI [ph] course, the 400 people that have registered already. Can you characterize those? These are not -- are these anybody that's been trained already, that are wanting to do the CME to get credit? Or are these other people that then would be --?

I don't know that exact breakdown, Kate, but I would say that they are probably -- most people have not been trained, that would attend this. And the male shock of this only went out last week, and at that point when when the male shock went out, we had 311 people signed up for the course, on ocular surgery new did, I gave the web site. So I would tend to say that this is new interest, as opposed to people that have had any exposure to the training, to the ICL surgery, through going outside of the U.S..

Okay.

And I think this is reflective of new interest, and obviously it's partly driven by the positive outcome for the panel meeting.

Kate Sharadin? Right and I guess where I was just trying to get more information or color on it was you had a few hundred people trained already. I thought. And then could we just guess that this might add to that? Or would you be able to -- and then you also have this, I guess how you want it to be very selective at who does get trained, and who does get proctored, the private surgeon etc. Is there a way to know if all these 400 people plus the ones that are already trained, are within that I guess outline of what you would target.

I think the CME program is on, to familiarize people with the ICL. Or with Fakic [ph] IOL, specifically the ICL. The majority of the attendees will have not been exposed to the STAAR ICL courses by having gone outside the U.S.. All of the people that attend this will have to attend one of the STAAR one or two-day courses, throughout 2004, which we're planning around about 10. But really, we see this meeting as seeing interest, to then seed into the official certification training courses, as opposed to this being a certification course on its own.

That said, some people may attend who have been exposed externally. But I think the majority will be new interest, new surgeons. And just to reiterate the point I made, we've had a lot of -- the 311 announced over 400 are doctors. At this stage we have not allowed assistants and additional people to register. We're purely focusing on the doctors at this stage, because we've had such strong interest. And that's on on the Sunday morning, Kate, from 7 to 9.

Okay and then -- okay. And how many courses -- you said 10 -- how many training courses are you going to be holding?

By Chairman approval, we're currently planning for around about 10.

10? And how many slots would be per course.

30 to 40 people per course. And we're probably on average of 30. But we could go up to 40.

All right. Thanks. And then just going back to the question that was asked about the ICL revenue as it relates to what you thought about estimates. Frankly, I -- you've got a number out there. What are those? What do you see as a high estimate right now? So what number are you talking about, that you could meet or exceed, because I really don't think I know what all the estimates are.

I don want to cause confusion on this. And it seems like I have I'm very comfortable with the estimates that analysts have out there for what we will sell into the market. I am more optimistic as the market size than the current analyst expedite. I'm more optimisitc of the market size, than the current analyst estimates. I think Fakic [ph] implants are going to be larger than the current market that's being indicated by the analysts.

Right. But you're talking about a number that you're comfortable with, with respect to what we are estimating. So, I know what I'm estimating, I just haven't seen the details of everybody elses. Can you give us a rough number of what that might be?

It's a range from 5 to 7000 units I think Kate by memory. And as I said we feel comfortable with those numbers. So we are giving specific guidance, but as you can tell I feel really comfortable given the level of interest we're getting with those kinds of numbers.

Okay great. And have you had any more information on Taiwan?

Will yes we we've obviously follow up on all of these approvals and on Taiwan specifically, I gave a stron update last time. We've had delays with this one, and repeated requests for the same information. So we've decided to engage a local consultant, to monitor local activity on this submission. None of the requests we have had causes us to think that approval should not be granted, but we're concerned that the inordinate amount of time that it's taking. We're confident that no other companies with other applications are experiencing similar delays. But, we're going to try and manage that more locally, and we believe that the approval could come through any time on Taiwan.

Okay very well. Thanks very much everyone.

Thanks Kate.

Thank you. (Caller Instructions) Our next question is a follow-up questoin from Mr. Ryan Rauch. Please go ahead.

Hi guys it's me again just one quick follow-up. It seems like the competitive landscape for you guys seems to improve; we're hearing that Medenjen [ph] has stopped their clinical trials; we've obviously heard during the panel that Optex [ph] panel will be delayed now. Can you comment even perhaps anecdotally on what's going on with those companies? Is it related to endicelial cell loss [ph] or anything you might be able add there?

Well I think on the TRL, it's well known that the Phase III clinicals are on hold because of endicelial [ph] cell loss. The same is true in Japan, when I was down there, they wre on hold there. I think the real answer here goes back to point I made on the call two weeks ago. In that, we have set a fairly have standard around the endicelial cell count issue. You know as the world's expert Hank Edelhauser [ph] pointed out to the FDA, in a multi-center trial, you need to adopt a single expert reading center, to measure cell count if you want to increase the accuracy of the reading.

We learned that early on in the ICL study, and used Emory University to do all of the readings. As a result we obtained very reliable data. With a very narrow confidence interval. Any trial which does not -- or has not adopted the same methodology, will have great difficulties, and we believe, although we cannot confirm, that our competitors significant challenges with this issue, that could delay approval.

In addition, I think it's worth pointing out, that once a product is approved into the market, a breakthrough technology in a new area, it becomes much more difficult to recruit patients into new studies. So, that's another factor, which following approval or hope for approval would play in. But I think in a nutshell, we've set a very high standard for the endocelial cell count issue, and I think other people are having to face up to those same challenges, and I think that's going to get very interesting. I think if I was put on the spot I'd say we're gainig time on the competition, all of the time.

Thank you very much.

Our next question comes from Mr. Neil Bradshaw, [ph] with Broadwood Capital. Please go ahead.

Well first of all, congratulations on what seems like good news on several different fronts. On this issue of ICL sales, versus market size, I want to make sure I understand what terms we're using. When you talk about sales, you're talking about sales expectations for your particular product. When you're talking about market size, you're talking about the eventual potential total size, for all fakic [ph] IOLs, is that the distinction?

Correct, exactly.

Okay, so the market size number wouldn't concern next year, whereas the only sales numbers I'm aware of are specific to next year. Is that right?

Correct yes.

Okay, so the implication here then is, people's numbers for next year you're comfortable with, but to the degree that people have talked about an end potential number, you think now that it's probably going to be considerably higher than that, although you may of course have to split it with others, but we don't know what the spread, and Optex [ph] out, and Medenium's [ph] out, so it's looking better. Is that sort of the bottom-line here?

Yes, I think that's a fair bottom line.

Okay. Good. And then on seasonality in Europe, we've been hearing that from other medical device companies, in this reporting season; it's always weak, because a lot of the doctors go on vacation for several weeks in the third quarter. But it's apparently worse this year. You mentioned the heat wave. Are there any other factors? And certainly the heat wae got a lot of attention, did you really see a clear direct impact on that?

We saw a Spain, Italy and France close down for longer than normal. And anecdotally when we talk to those surgeons at the ESCRS meeting in Munich, which was the first week in September, they really had only had just come back to work. The only other factor was Korea, as I alluded to earlier. Korea slowed down from the rate of refractive that was occuring in the early part of the year, for economic and political decision -- economic and political reasons, and we are seeing that start to come around as well.

And Korea has been a really contributor to the first-quarter growth. So you had additional seasonality impact in Q3, plus Korea well down, and that kind of a double whammy there. As I said, we're seeing that positive trend start to pick up and we would look for that to continue.

That makes sense. Then on the ICL, do I have these numbers correct? The ICL was up 15% year-over-year in the quarter. And it was up 20% year-over-year in the first half?

I believe that's correct.

Okay. If that's correct it sounds as though the ICL seasonality was actually better than that of the rest of the international business, is that right or not?

Yes, I think you can say that.

Okay. Because that's just diametrically opposed to what some people had indicated a couple of weeks ago. Externally to the company but -- --.

Yes, I think we've been very clear on it, and I think you you've encapsulated well there.

Okay, well people have said some things and I just wanted to see what the truth is. On the SEC issue, this seems like obviously a very nice resolution here. You are essentially going to be issuing restated statement for the last few years. Will those be in your 10-Q?

Yes. We will have to get almost all of this accomplished before we publish our third-quarter 10-Q.

Okay.

It's not, difficult it is a lot of work I must admit; the numbers are not large, but we anticipate getting this done by our 10-Q filing date. We have the numbers we quoted them.

And Neil, John talked about this at length, I really didn't make any comments, I just want to emphasize that we're delighted that this is behind us; we're delighted with the outcome; we have a little bit of work to do, but it's minor. And kist pleased to be moving forward. The increase in G&A that John talked about which was a direct result in Q3 of this whole activity, of getting the two accounting firms opinions, and talking to was a onetime event. It was significant, and yet year-over-year G&A was still slightly down.

We're going to see things in that G&A.

Somebody had asked that question earlier. And we didn't answer that. But, there was a good -- in excess of $200,000 in our third quarter in G&A. So, if you look at our numbers, we would've been down year to date, and flat versus prior year in the quarter. So, this was a significant amount of work. With my staff, with the video [ph] with our law firm Shepherd Mullin [ph]. So, and we are very, very happy to have this done.

You said you would've been down; you were referring to G&A expense would've been down, rather than up 240 or whatever it was?

Well, on a year-to-date basis, because we were flat year to date.

Okay I see what you're saying.

We would have been down from the year to date period, and kind of flat in the quarter to prior year.

The increase in the quarter was driven by that number.

Fundamentally, yes.

Right. And just to make sure I understand this, the historical change in the income statements. Obviously, there's no cash impact of that. And the other aspect of this, was that you're caused to release reserves, so it actually has a net benefit, to earnings on a complete company-to-date basis of a million and a half, if I net that out, is that correct?

Yes, we showed the 1.7 reversal as kind of a non-recurring event. But clearly we did release those reserves. We would go on to a pure accrual method of accounting, as it relates to interest income, on the notes that are out there. And then of course, the restatements to prior years, which we just summarized.

And there will be a positive effect on retained earnings, because we'll also make a retained earnings adjustment for the period, not presented which is like four or $500,000.

So shareholders equity goes up? On that particular item. Gotcha. Great. Again, congratulations, seems like a lot of good news. Thank you.

Thanks.

Our next question comes from Larry Huminvich, with HMTC.

Good afternoon. A lot of the questions I had were asked by that very bright analyst that preceded me, but my question for you David, is we've heard that Optec [ph] would on the next panel meeting, we've heard talk that it would be in January. I checked the FDA web site pretty regularly and see that there's nothing scheduled yet for 2004. Are you aware of any information beyond that, in regard to when they might next be on a panel meeting?

No, not at all Larry, other then what I've said earlier, specifically about the bar, with regard to endicelial [ph] cell counts.

Do you have any thank you -- do you have any indication that they have a challenge in that area? You mentioned the PRL, [inaudible] have some issues with them, endicelial cell counts, but are you aware of specific problems with Optec lens in that regard?

Not specifically, Larry I mean, there's some anecdotal stuff around, and specifically they reported first year endicelial cell counts which had increased. That was very strange, because you just wouldn't expect that during the first year, because that's when the surgical trauma occurred. So, that might indicate variability, and I just bring people back to the point I made, that on a multi-centered trial cite, you really have to have one reading center, we learned that early, and I do believe that Optex do not use a central reading center. And that will result in increased variability on that factor, and so the data would need to be looked at very very carefully. So we know two things. We need a central reading center to reduce the variability, and presented that to FDA. We also know that Optex do not use a central reading center, so I'll leave people to draw their own conclusions.

Regarding FDA approval of the ICL, I realize one talks about FDA that it is very difficult to make predictions, or projections. For internal planning purposes David, when would you be ready to really launch the ICL, and when, in terms of planning process, do you start assuming it's in the business plan for next year? Are we looking at say the second-quarter actual sales being to get generated? You probably have some plan in mind, and some hope in mind, about when you can launch it, but I realize that hope is so much dependant on how the FDA moves along, but I was wondering what your thoughts are on that?

I mean it's out of our control really Larry.

Of course, I understand that, but you've got to make some plans nonetheless internally.

I know, and I'm an aggressive guy, so if I told your my aggressive plan, you probably wouldn't believe it. I want to be ready sooner rather than later. I can see everybody in here smiling at me when I say I'm an aggressive guy. So, we're pushing along very hard. I was in Switzerland last week with the manufacturing facility, making sure we have got the ramp up there. They've got a double challenge. We've got a ramp up on the Collamer 1 piece, which is doing very nicely, and a ramp up on ICL. And then internallym it's no coincidence Nick Curtis isn't on the call, because they're working very aggressively on the marketing plan, and pulling everything together.

So we're pushing ahead very hard. What I do expect, as I said in my main text is that our discussions with the FDA, I would hope continue in the kind of expedited manner that everything else occurred. The FDA helped us hugely in that process. That put a huge strain on the company, but I would hope the labeling discussions and dialogue occurs in a similar vein, and I don't see any reason why that wouldn't be the case. We do an expedited review.

One last question about the FDA then. What in your mind remains to be resolved? Is it just sitting down and arriving at a label that everyone can be happy with? Are all of the other issues of final approval such as manufacturing, etcetera, behind you, that all that remains is sitting down negotiating a label, and then they can give you the final approval? or are their other matters?

I'll let Helen comment.

The main element remaining with the FRA is a lot of indecision. During the course of distribution, we went to several manufacturing audits, and some of them are still in final stage of [inaudible] so the main element is still at the [indiscernible] from which we do not expect a lot of difficulties [inaudible]

Helen, have there been any issues at all that have come up in regard to manufacturing -- it sounds like from what you said it shouldn't be, but just to clarify. Any issues the FDA has had with manufacturing, GNPs anything like that? That could hold up the approval, once labeling is resolved?

I've seen everything worked in conjunction, and we do not expect huge issue with this element.

Yes. And I don't know how many labeling issues you've been involved with, or David perhaps you can take a shot at this as well, do the labeling issues on this one strike you as particularly more complicated than other times? I realize this is first of class, and that may present some challenges, but in general, is this a particularly challenging discussion for the FDA and you to resolve?

I can't imagine it's more challenging than the panel meeting Larry, which we had a very positive outcome on. And I have total faith in Helen and the FDA to work any issues through.

Okay, thank you very much.

Thank you, the next question comes from Mr. Marvin Sperling, with ING. Please go ahead.

Hi guys. Can you give us an update on the enrollment of the Toric ICL trial?

First off, its progressing extremely well. We will complete enrollment by the end of this year, and will have all of the implants completed by the end of Quarter 1. Remembered, there's a 60 day lead time on the product. So I can see enrollment being completed by the end of the year, all the lenses being in the manufacturing process, and implanted by the end of Quarter 1. At the moment, excuse me -- we've got 84 enrolled to date. So that -- we have to do a year's follow-up, so we'd be looking at completion of the year's follow-up, by quarter 1 of 2005. What I would say is anecdotally, the visual outcomes are exceptional with the product; there was a presentation in Munich, by the Noyhan [ph] group, which showed the outcome of the Toric product and they were exceptional. And we needed the same thing from our trialists. So we're very pleased with the way that's moving along. And in terms of manufacturing, we're getting things made within the 60 day leadtime that we guaranteed. So, everything is looking very well to achieve the goals that we communicated to investors, some time ago.

Very good. In regard to the ICL, you mentioned I think in this call I heard you correctly, about possibly having a new name for the ICL? Which is something that came up in the panel.

Yes, the marketing group had already been looking at this. So it was kind of interesting that it came up at panel. This wasn't prompted by the comments at panel, it was actually an internal issue to start with. And we're just in the final stages of that at the moment. But yes, we will be launching a new brand name for it, at the AAOF.

Okay. Great. And in regards to the outstanding promissary notes, the $1.9 million I believe it is, I know it's probably somewhere in your Q or you K, but just just go over what that's about again? And when you expect possibly to see that 1.9 million?

Yes. There are two separate notes so to speak. One is from Paul Richardson [ph] and that was as a result of the settlement and bankruptcy with our ex Chairman, who repaid $2.2 million plus we took a note. So that I believe there's roughly $400,000 remaining on that. That goes through 2005. We have a note for about 1.5 million, 2 notes, 2 separate notes to one individual and ex board member. And the longest that goes out to is June 2004. Now there is the possibility that those notes could be paid, they carry significant interest rates. So -- that's when they do come due.

Okay, so we could possibly see that in 04? Obviously.

You could see the larger of the two notes, the 1.5, you could see those being paid off at any time, Marvin, because it is a burdensome interest rate.

All right, great. Well, good luck at the AAO.

Thanks, Marvin.

Our last question comes from Mr. Tyson Hause with Hause Advisory Management. [ph] Please go ahead.

Gentlemen. Sort of a long question, but it gets to the point that several people have been asking. Now it appears from speaking to you and listening to the call, that the market opportunity for the ICL is probably largely than what your initial rollout is going to be next year, and the primary concern, or gating factor, is the training and proctoring of surgeons. And I was wondering whether you could review exactly how many people are trained and proctored in the U.S. and internationally now, and perhaps at some point in the future, lets the June 30th, and year end, assuming let's say there's an approval in the first quarter. to give us some sense of how many people, and how quickly, you'll be able to ramp the number of doctors who are both trained and proctored?

Good question. First off, in the U.S., other than the trialists, no one has been trained and proctored. So as I said, some people have attended training courses outside, but nobody has been proctored. So within the U.S., the gating factor is the ability to proctor, and we will have eight people capable of doing that. I won't -- I don't intend to go through the exact model that we use, Tyson, but I will give you -- I will paint some broad brush strokes. We expect to be running approximately 10 courses. We have a capacity of 30 to 40 people. We have eight proctors. Initially the proctors would usually spend one to two days with a surgeon, to take them through the learning curve, and then it's normal that a surgeon would use some implants, and they would probably watch and follow-up for a period of time, before they begin routine usage.

So in terms of the model, I think that's the kind of thought process we go through. Now, as a result of going through that, I've stated quite clearly I hope on this call, that we feel comfortable with the current estimates for unit sales of ICL in the U.S. in '04.

We think the market is bigger than the current estimates, and the way we feel comfortable with the numbers, is having gone through that kind of modeling that I'm just describing. I don't want to go into more detail than that, but hopefully that paints a good enough picture.

Thank you on that, and two other quick questions. One is, John Bily might be able to answer, he's done an excellent job in managing your cash flow while you've been running ata marginal loss for a while. Do think that you'll be cash flow break even in the first half of next year? Because I know that you said you would probably be running at a loss?

Yes Tyson what we have, and we have talked about it earlier, is we're right in the process of doing our operating plans. We hope to have that done first week of December, that operating plan is going to open up the whole business to us as we lay down the assumptions for ICL, and a lot of assumptions for U.S. market growth, cost structures and all of those things.

I will tell you that we will -- as we mention all of the time, working capital management is one of our big strategies within STAAR, and we have $10 million in the bank, we have sales and marketing programs, we have inventory and receivables to invest in etcetera, so while I have not done the plan, I doubt that we would be cash flow positive, until maybe the fourth quarter of next year.

And the last question is anecdotally, how many doctors have you heard let's say have waiting list for the ICL, in excess of 25 or 50 people?

I really don't want to speculate on that, but the issue of a waiting list is individual to a doctor. And our experience is -- or my experience in this industry, is patients will not wait too long. In fact when we launched the Toric in Europe, the indications were that people waiting to have it, but actually when it came down to it, it was more new patients that came along to actually take up the implants.

So I really don't want to get into speculation about how large waiting lists are, or even if there are any waiting lists. What I do want to reconfirm is that we're seeing good strong interest from the ophthalmic community, in what is understand the Fakic [ph] the ICL, they are excited about what happened at the panel, and I think testimony to that is the number that are planning to attend the CME breakfast meeting at the AAO. And I think that's probably a good indicator of the underlying interest. Some of them may have waiting list, I don't know. I don't want to speculate, Tyson.

Thank you very much. Good luck.

Thank you.

And there are no further questions. Please continue.

Great thank you. Wel, I just want to thank everyone for some some very good questions. Before I close off the call, I would just like to emphasize that we look forward to illustrating you on the FDA approval process, as it goes forward. We clearly have work to do on the three-piece injector, and are focused upon that effort. We believe that the international business will return to solid growth in Q4, and that the growth in the U.S. will continue. Overall, having got quarter three behind us in two huge milestone, the ICL panel and the accounting issues, I'm very excited about our future prospects, and we hope to see many of you at the conferences we're attending going forward. Thanks very much.

Ladies and gentlemen, this concludes the STAAR Surgical third-quarter 2003 results conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3000 or 1 800 405-2236 and enter the access code of 555304. Thank you for participating. You may now disconnect.